In my practice of community association law, I often encounter situations where I am asked to undo a mistake or get the association out of a jam. To some extent this is the nature of the practice of law in general. However, it seems to happen even more often when it comes to contractual relationships between associations and third party vendors or contractors. Inevitably, when these situations occur, I am asked to review a contract for the first time and to figure out how to make it work in the favor of the association. Too often, the results of my review are delivered in the form of bitter medicine that is hard to swallow.
How can these situations be avoided? The following is a brief set of “Do’s and Don’ts” about contracts that will help boards avoid common problems.
– Seek the advice of legal counsel before entering into any contract that is of significant value or time frame to the association. Is there a specific monetary value you can use as a rule of thumb to determine whether the association should spend the money to have an attorney review it? The answer depends on your individual association, the size of its budget and other risk factors. If your association has a million dollar annual budget, a $10,000 contract may not be significant in value. If your association has a much smaller budget, it may be worth spending a few hundred on legal fees to have that $10,000 contract reviewed.
With regard to time frame, long term service contracts can provide trouble down the road if the provider fails to perform as expected or otherwise falls into disfavor with the association. Any association, at the very least, should probably have any contract with a year term or longer reviewed by an attorney to be sure there is an adequate escape or termination available.
Don’t – Make any “handshake” deals. As my law professor used to say, an “oral contract is worth the paper it is written on”. What are the terms and conditions of the association’s oral contract with the landscaper? If they are not in writing, the terms are whatever either party can convince the judge they are. Why take the chance of having the other side lie and attempt to fabricate the terms of the deal? And why risk confusion if the manager who entered into the deal moves on? It is not that difficult to put the terms into writing, and in most cases the performance of the work can wait a few days for the writing to be completed and signed by both parties.
Do – Hold out for the revisions and/or contract provisions that are important to the association. If the contractor or vendor is motivated enough for the work it will find a way to accommodate the association in whatever it’s asking for, as long as the requests are reasonable and fairly common contract provisions. If the contractor or vendor is not motivated enough to agree to reasonable revisions, then there is a good chance the lack of motivation may be reflected in the quality of the work performed.
Don’t – Sign off on any “proposal”, “work request”, “offer”, or “quote” on behalf of the association and think that it is okay because it is not called a “contract” or “agreement”. Depending upon the language in the document in question, it may effectively create a contract once signed no matter what it is called. If the essential terms are stated in the document, it may bind the association to a relationship with the other party, and the terms may not be favorable to the association. Have these types of documents reviewed by legal counsel before signing them, if they meet the standards of significance in money or length of time discussed above.
Do – Make certain, if you decide not to pay for an attorney’s review, that the agreement or contract has at a minimum the following provisions to protect the association:
- A definite term (number of years or months) that it will be in effect.
- Clearly state the amount to be paid by the association, to whom, and by when.
- No ability to increase the amount paid without the written approval of the association.
- Specify how the contractor will protect the association, by some combination of a hold harmless clause, an indemnity clause, and/or insurance coverage.
- A way to terminate the relationship, preferably without cause.
- The association can recover attorney fees in the event of breach by the contractor.
- The document should not give the contractor the authority to bind the association in any way to any other agreements or duties.
There are many other terms and conditions that we typically recommend to protect an association from harm. We can provide a more complete list upon request, but recognizing whether a particular clause is written correctly or provides adequate protection is really the job of a qualified attorney.
Don’t – Assume that mediation or arbitration is always a good thing. Depending upon the subject matter of the contract, mediation or arbitration could simply prove to be a costly and time consuming impediment to being able to effectively “go after” a contractor who has failed to perform. On the other hand, mediation or arbitration can help resolve broken relationships that an association may want to keep intact, and can create solutions that are a win for both parties. Keep in mind whether a quick path to the courtroom is a good thing in any potential contractual relationship.
Do – Closely review, or have an attorney closely review, any termination provisions in the document before attempting to terminate the relationship. Certain termination clauses may contain very specific timing and notice requirements that, if not followed closely, will make an attempted termination invalid. Chances are you are terminating a contract because the relationship with the contractor has already gone sour. An ineffective termination could further sour the relationship and lead to costly litigation.
With the foregoing Do’s and Don’ts in mind, your association hopefully can avoid having to attempt “undo” something that shouldn’t have been “done” in the first place.